Forum Archive Index - March 2002

[jerrold poh <pohj@ihug.co.nz>]

On Fri, Mar 08, 2002 at 12:01:51AM +1300, AD wrote:
> I have heard a few people say that it is best to set up a company if
> you are going to trade shares on a short to medium term basis, but I
> have failed to ever get a direct answer as to why.
> 
> What are the actual advantages and disadvantages of setting up a
> company to trade shares?

Disadvatage:
The instant you set up a company, shares that you trade / hold for long
term, are automatically considered as stock / inventory, meaning you
have to pay tax on any profits you make.  


Advantage: 
If you lose any money on shares though, you can use it as a way to avoid
paying tax, but the aim of the game is to win, not to "negative gear".

Another way you can do it is if you buy your shares with your company,
and your company also owns real estate which you are negative gearing.
That way, if you do it right, you won't pay any tax on your shares when
you make a profit (see an accountant (a tax one preferbally) to get
specifics).  Again, the aim of the game is to win, not to pay less tax.  

Also, (and this is the best reason), if you accidentally do something
stupid, and someone sues you, they can't take your shares.  They can
only sue you personally, and anything in your company is safe (ie,
properties, shares, bonds, etc).  

And while on the topic of protection, if you buy shares on margin, and
that goes horribly wrong (ie, you owe the bank heaps), they can only
take down your company, your family home is safe, and you still have the
shirt on your back.  The bad side of this is that you can't be a
director of a company for a few years (5 - 10 i think?), but look at it
this way, you still have your house, car, etc.  It's all about how you
want to manage your risk. 




Jerrold.


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